Do you need help with PPP compliance?
If you received a Paycheck Protection Program loan, you probably didn’t need help with PPP compliance. The program was a Cares Act provision. The application process was designed to respond as quickly as possible. You didn’t have to provide collateral or personal guarantees. As loans were primarily to maintain employees, you qualified based on payroll data.
As you contemplate repayment or loan forgiveness and prepare for your 2021 tax deadline, you’ll need help with PPP compliance. You must show that you used the loan as intended. You must also provide documentation that verifies your claimed expenditures.
The Rules Have Changed
If you received a PPP loan during the initial stages of implementation, the terms have changed since then. The Paycheck Protection Program Flexibility Act of 2020 (signed into law on June 5, 2020) modified some of the original rules. Here are a few of the changes.
- Loan recipients prior to June 5 had a choice of either the original 8-week coverage period or they could opt for 24 weeks. The program includes a mandatory 24-week coverage period for loans after June 5, 2020.
- The required payroll percentage changed from 75% to 60%.
- Covered non-payroll expenditures increased from 25% to 40%.
Of course, you should check with your legal or financial advisor to determine how these and other guidelines affect you and your business. Your bookkeeper can also help with PPP compliance by providing a detailed, accurate record of your financial data.
Deferment or Forgiveness?
If you received a PPP loan and you also want loan forgiveness, you must qualify for that as well. Approval requires that you submit proof of your covered expenditures in the required timeframe.
You may submit your documentation and request loan forgiveness as soon as you have spent all of your loan on covered expenses. Whether you choose an 8 week or 24 week coverage period, you have 10 months after your coverage period expires to submit a Loan Forgiveness Application. If you don’t apply for loan forgiveness, your loan payments are automatically deferred until the 10-month deadline.
Do You Need Help With PPP Compliance?
To receive PPP loan forgiveness, you must provide proof that you used your loan for qualifying expenses such as rent, mortgage interest, or payroll. Meeting this requirement can be simple if you operated your business, retained your employees, and kept detailed financial records.
The documentation process will be more complicated if you lost employees, replaced employees, or paid less to your employees than anticipated. Either way, a bookkeeper can provide the day-to-day financial data to support your loan forgiveness application.
Payroll is your most complicated expenditure.
- You must show that you retained your employees or quickly hired replacements.
- The term “paycheck” covers a range of employee-related expenses. It includes compensation such as wages, commissions, tips, vacation pay, paid leave, sick pay, separation pay, group health care benefits, paid employee insurance premiums, retirement benefits, state or local taxes, and other ongoing employee benefits and costs.
- You must show that you maintained the employee and salary levels shown on your original application.
- You must show that you spent at least 40% (previously 75%) of your loan on employee salaries.
- You must also show that you used all of the funds by your 8-week or 24-week deadline.
PPP Tax Complications
You should also consider bookkeeping help with PPP compliance at tax time. Changes to the original PPP guidelines gave businesses some relief from the payroll percentage, spending requirements, and forgiveness application timeframes. The program still creates several tax complications. IRS-Notice 2020-32 briefly explains how PPP loan forgiveness eliminates PPP-covered business deductions and reduces a business’s gross income. Your 2021 tax filing must accurately reflect these offsets.
Contact Goode Bookkeeping and Consulting
Our professionals track your financial data and produce accurate financial reports. We provide timely help with PPP compliance documentation. To learn more about our bookkeeping and consulting services, contact us today for a free consultation or call us at (860) 659-6543.